Compliance Services Are Not a Commodity, Part I

by AccountingWeb on May 6 2008printer friendly

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By Alex Vuchnich, CPA, CFE - Why is it, that even in a time when accounting services are in high demand our profession continues to see increased pressure to keep costs of core audit and tax services low? The root problem seems to stem from the commonly accepted perception that audit and tax compliance are a commodity. This is particularly true in the case of how our clients typically perceive these services. It seems however that as a profession we have grown complacent with this view and have just accepted it as how we must do business. I fear that this mentality has already had an impact on the overall quality of the services we provide and in the long run will continue to weaken our image as one of the top and most trusted professions. Recent standards and pronouncements have further echoed this sentiment with an emphasis being placed on more strict guidance (i.e. more regulation) and the risk based audit approach in an effort to increase both audit efficiency and effectiveness.

The consensus appears to be that in order to compete in a compliance driven industry the only competitive advantage has been reduced to price. Many firms taut that their client service is their core competitive advantage but how many are able to translate that into higher profitability and realization? Exceptional client service may create a great reputation and get your foot in the door, but many smaller firms still have to bend to the pressures of price competition. This increased price competition naturally leads to slimmer margins and can eventually result in lower quality when short cuts are taken to keep an engagement profitable. This situation is generally a no win for the firm. The only way to increase net profit when margins are slim is to make it up on volume. Attempting to increase the volume of engagements coupled with the lack of available qualified staff in our profession will result in a strategy that will ultimately fail.

The purpose of pointing out these concerns is not an attempt to spread doom and gloom on the profession. This is simply a first step in identifying a problem facing many CPAs from sole practitioners up to the top tier national firms. There are already many CPAs in practice who have found compelling solutions for managing client perception of their services or transitioning from compliance service to management advisory service. In order to begin to turn the tide on the perception of the value of CPAs, there are certain realities that firms must face and certain resources firms need to leverage. Key among the realities that must be faced is that firms need to accept that for many of their clients it may be time to reevaluate their relationship. This includes taking another look at the firm’s independence and objectivity while also evaluating the client for dependency. Many firms may be independent from the firm’s perspective but often in smaller organizations clients feel a significant amount of dependency on their CPA to ‘keep the books straight’. The next few series of posting will focus on the tangible steps firms can take to face these challenges as well as the resources that can be leveraged in doing so.